Chile Mining Taxes Are Competitive

by Mike Godfrey, Tax-News.com, Washington

15 June 2010

Chile's Mining Minister Laurence Golborne has claimed that Australia's proposed Resource Super Profits Tax represents a "tremendous opportunity" to promote Chile's stable and secure tax regime, at a time when concerns have been raised in the Chilean Senate about the country's tax competitiveness in the mining sector.

"The situation in Australia is a tremendous opportunity for Chile if we can offer the mining sector stability and tranquillity. Let them know that our tax schemes are stable over time," Golborne told reporters at the Ministry.

Chile, the world's leading copper producer, is also revising taxes on mining in a new copper royalty bill to help finance post-earthquake reconstruction. The additional Chilean royalties are designed to be temporary and non-mandatory, incentives having been added to encourage voluntary adoption of the tax increase.

For 2010 and 2011, the new proposal has a variable tax rate, between 3.5% and 9%, depending on the copper-mining company's sales margins and on copper prices. It then reverts to 4% from 2012 to 2017. Chile wishes to raise USD600-700m from the royalty increase, the exact amount depending on which options are exercised under the new tax scheme.

"We shouldn't lose sight of the fact that as a country we compete for investments for our mining sector. Just because you have resources doesn't guarantee investments. There are plenty of countries with mining potential and investments will go to the countries which offer the best economic conditions," said Golborne.

In the Senate, where the bill is being scrutinized, members of the finance committee are locked in argument as to whether Chile's taxation rates represent an acceptable tax burden alongside the extra taxes levied for earthquake reconstruction.

Senator Escalona was quoted as saying that "the intervention of the Minister of Mining was well documented but we came to different conclusions. It was difficult to sort the information on the tax burden with the various mining companies in different countries as regards income tax, specific tax and other benefits."

Senator Evelyn Matthei warned that while Minister Laurence Golborne's comparison of tax rates in Chile with those of other competing countries seemed to indicate that Peru had higher taxation rates, in fact many taxes in Peru were negotiated down, and in practice Peru had lower rates than those of Chile. In the last eight years Peru had doubled its share in world production of copper, and was making a huge and successful effort to attract mining investment. On balance however, Matthei believed that Chile's tax rates were set at appropriate levels to attract investment, as evidenced by the USD20bn in taxes raised from mining companies in "recent years".

London-listed Chilean mining company Antofagasta PLC has issued a statement in support of the Chilean tax measures, in which chairman, Jean-Paul Luksic states: "We welcome the fact that the government's current proposals respect the tax stability agreements previously entered into with the Chilean state, and also reflect temporary changes to the tax system, to address the current exceptional requirements of the country," he added. "Beyond these exceptional measures, we expect Chile to continue to provide a stable and supportive environment for long-term mining investment."

Recommended